General Credit Topics

[clyon]

Why does most negative information stay on your report for 7 years? Why 7 years? Why no 6 or 8? How did FICO come up with this time frame? I teach financial literacy and had a student ask this question. I can't seem to find the answer anywhere.

[Lel]

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clyon wrote:

Why does most negative information stay on your report for 7 years? Why 7 years? Why no 6 or 8? How did FICO come up with this time frame? I teach financial literacy and had a student ask this question. I can't seem to find the answer anywhere.

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http://ficoforums.myfico.com/t5/General-Credit-Topics/I-asked-a-lender-why-debts-fall-off-your-credi...

I don't know whether this is true or not, but it's an interesting way to look at it.  It's not entirely an accurate correlation, though, because the 7 year limit is for reporting, whereas the statute of limitations for debt collection may be more or less than 7 years.

[clyon]

 Thanks! Very interesting!

[guiness56]

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clyon wrote:

Why does most negative information stay on your report for 7 years? Why 7 years? Why no 6 or 8? How did FICO come up with this time frame? I teach financial literacy and had a student ask this question. I can't seem to find the answer anywhere.

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The length of time negative information stays on your credit report is a federal rule contained in the FCRA.  FICO has nothing to do with it.  FICO is a score.

[clyon]

Well sure the FCRA says so, but it does not explain why.

[Lel]

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clyon wrote:

Well sure the FCRA says so, but it does not explain why.

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I think if you look at various laws, the time limits that are imposed seem arbitrary.  For example, the new Credit CARD Act specifies that consumers must be notified 45 days in advance of any changes to their cardholder agreement.  Why not 60 days?  US Presidential terms are set at 4 years, with no compelling reason given.

guiness56 is correct, the 7 year limit comes from the FCRA.  Where they came up with this number is open to debate and could very well be just an arbitrary decision as well.  I posted the link above mainly because it was a curious discussion about this same topic.

[cestmoi]

The 7 (7.5) years of reporting is based on the bible.  Deuteronomy 15:1 states, "At the end of every seven years you must cancel debts." (New International Version, c.1984)